The GameStop situation:
People on r/wallstreetbets noticed that GME was a widely shorted* stock, especially common in hedge funds (investing funds that use more complex tactics, usually high risk), so they collectively decided to buy the stock, which, as per standard supply and demand laws, increased in price. The institutions / individuals that had shorted the stock and saw the price increase, had to buy their shorted stock back, which in return caused the price to go up even further (the short squeeze). The reasoning behind this, as far as I am aware, was quite solely to cause some professional traders huge losses.
Find a company that you assume is going to do worse in the future. E.g GameStop, a legacy company with a dying business model. What you want is the share prices to go down (e.g $5 a piece -> $2 a piece). If a company is doing worse, it will affect the demand and hence cause the price to drop.
Borrow some stocks of said company (you have to return them at some point)
Sell them straight away at the current price (e.g $5 a piece)
If your hunch was right and the price goes down after a while, buy them back (e.g at $2 a piece)
Return them to the borrower
Your winnings are: (the price you sold the borrowed stocks for x the amount) – (the price you bought them back for x the amount). E.g in this case if you for example bought 100 stocks, your winnings would be
(5×100)-(2×100) = 500-200 = $300
7. the catch The losses can be huge if the price of the stock goes upward instead (after you’ve sold the borrowed stocks). To illustrate this, let’s replace the reduced buy back price in the previous calculation with an increased price of $50 a piece.
Price increases from $5 -> $50 a stock and you have shorted it: (5×100)-(50×100) = 500-5,000 = -$4,500
Now, imagine the hedge funds that had shorted GME (in very large quantities) and the price goes up from something like $40 a piece to $300 a piece.
Extra: In reality, professional individuals/institutions that use this tactic use something called the margin call, which is a calculation that, by adding in a few properties, gives you the price you have to buy the stock back for if the price happens to increase. So, most of the people who shorted GME might not have had such a huge losses people think.